Local Market Information

Utah's economy has rebounded impressively this year, following nearly three years of economic malaise. Stronger economic growth is expected over the next 24 months, with two recent decisions highly favorable to the Intermountain region, the state, and especially to northern Utah.

The first of these positive announcements was provided by Delta Airlines on September 8. The Company announced a major restructuring of its entire U.S. operation, with the closure of the Dallas hub. Delta also announced that hubs in Atlanta, Cincinnati, and (most significantly) Salt Lake City would be expanded.

The expansion of Salt Lake City's Delta hub is tremendous news, especially following rumors in prior weeks of its possible closure. The Delta hub is a vital component in regards to business activity and leisure travel for Utah and surrounding states. Delta's "vote of confidence" in their personnel and facilities in Utah will be a powerful tool to enhance economic growth in the region, hopefully for years to come.

The second major announcement was that upscale retailer Nordstrom will maintain a presence in downtown Salt Lake City. Nordstrom management had been adamant that the store would leave the Crossroads Plaza Mall in 2005.

Nordstrom announced on August 27 that it had reached agreement with Taubman Centers, Inc. (the property developer) and The Church of Jesus Christ of Latter-day Saints (the property owner) to stay open while mall reconstruction is underway. Nordstrom will occupy a new two-level store in 2007.

Efforts by the Church to revitalize the downtown area would have been extremely difficult with Nordstrom's departure. Church spokespersons have expressed a willingness to spend an estimated $500 million to rebuild the two downtown shopping malls, which are in close proximity to the Church's Temple Square and headquarters.

The reality of having Nordstrom as a key anchor store will make the Church's efforts easier. Success breeds success. Dozens of other retailers and restaurateurs will be much more interested in being included in the redevelopment now than if Nordstrom had packed up and left.

Getting Stronger

Utah's economy has picked up speed impressively over the past year. Following a three-year period of essentially flat employment growth, the state has now added slightly more than 26,000 net new jobs during the most recent 12-month period, a growth rate of 2.5%. We expect similar Utah job growth in 2005, with a rise of 25,000-30,000 net new jobs.

The state's unemployment rate has also declined as more people have found jobs. The Utah jobless rate averaged 4.7% in recent months, a major decline when compared to the 5.6% average of 2003 and the painful 6.1% average of 2002. The rate still has considerable room to decline before it approaches the 3.7% annual average between 1993 and 2001.

Building Up

Utah residential construction activity has remained strong this year. A combination of a growing economy and very attractive mortgage interest rates have led new housing activity to approach the boom years of prior periods. Sales of existing homes have also been very impressive.

Utah real estate values have not participated in the strong gains found across much of the country during the past three years, especially on both coasts. This relationship is likely to change over the next few years as the Utah economy prospers and as more people look to "cash out" (especially in California) and buy bargain-priced Utah homes.

The state's commercial construction sector has been sluggish during the past three years. Public sector and hospital construction has provided most of the action since the 2002 Olympic Winter Games buildup. The sector should see more activity over the next few years, in part as the downtown Salt Lake City malls rebuilding takes place.

The potential expansion of the downtown Marriott hotel from its existing 510 rooms to perhaps twice that many would also be a positive development. Close proximity of a 1,000-room upscale hotel to the Salt Palace Convention Center would help attract larger conventions.

Utah Outlook

The state has emerged from its recession and begun to add new jobs at an impressive clip. Recent positive announcements from Delta Airlines and upscale retailer Nordstrom to enhance their Utah operations will be critical to rising Utah economic activity in coming years.

We expect stronger Utah economic growth and more impressive job gains in 2005. Solid performance in the construction sector will also continue to pay dividends to Utah's economic fortunes. The state's rebound is clearly underway.

Single-family homebuilding was the bright spot for Utah construction activity in 2003 rising 14.2 percent from 2002. Permits were issued for 16,515 new single-family homes. Residential valuation stood at a record $3.0 billion through December, due in large part to the strength of the single-family construction market.

Local real estate professionals feel cautiously optimistic about the housing market. The caution comes from the possible increase in mortgage rates, pent up housing demands released during the active 2003 construction season, a prolonged war on terrorism (and Iraq), and rising oil prices. Local housing markets' performance is also affected by uncertain economic and political policies, consumer confidence, wages and job stability.

In 2003, Salt Lake County continued to be the center of residential construction activity in Utah. One-third of the 4,909 new single-family homes constructed were located in the county, mostly in the fast-growing suburbs. This represents a 33.1 percent increase from the 3,687 homes in 2002. Home prices rose 0.45 percent from the second quarter to the third quarter of 2003, according to the Office of Federal Housing Enterprise Oversight's House Price Index. Although Utah had a higher percentage increase in value than three other states, Utah still had the lowest increase in housing prices for the year-ending at 1.8 percent. According to Robert Farnsworth of the Salt Lake Board of Realtors, "We're starting to see a little bit of appreciation now." He states that the lack of appreciation stems from mounting job losses in Utah in recent years. "Jobs buy houses," he said. "If we have any type of positive job growth, we'll start to see more appreciation." Nationally, home values have increased at 6 percent, which was a 3.3 percent decrease from 9.3 percent in 2002.

Looking on the bright side, real estate experts predict that Salt Lake area home sales and prices are likely to improve. While employers in Utah are not yet hiring in mass numbers, fewer large-scale cutbacks and consolidations have taken place.